Banking with Cryptocurrency for Investors & Entrepreneurs

Dateline: Mexico City, Mexico

If you’re not already invested in cryptocurrency, it will be worth getting to know about this new, and arguably most lucrative, a financial innovation of our century. It is the cutting edge of fintech and looking to expand to become more mainstream.

With it being such a cutting-edge concept and currency, it can be tough to navigate the ‘how-to’ of it all. We have several articles relating to cryptocurrency that might be helpful in providing you a general understanding of it:

Recently, I have begun working with clients who bank in cryptocurrency and who run crypto-based businesses. As this is such a new sphere, helping these individuals create the perfect offshore plan has proven to be a challenge. 

There are ways to make it work, but it does require more work and planning on both ends. Each case is so individual and has to be customized to meet the needs of customers while also fitting into the developing realm of crypto banking and business. 

So know that this is a new area and information will change as the market continues to mature. We’re all figuring this out — customers, businesses, governments, and banks included.

In this article, we’ll discuss how to bank in cryptocurrency, noting that banking in Bitcoin is the most popular. We will give a brief description of cryptocurrency and how to get involved, but then we’ll also cover topics such as what crypto banking entails, how to open an account, the important things to consider when looking at a bank for cryptocurrency, and how to conduct business using cryptocurrency.

What is cryptocurrency?

In its simplest form, cryptocurrency is a digital token that is produced as a reward for processing the transactions. These transactions are logged into a decentralized ledger called the blockchain. Bitcoin was the first cryptocurrency and still remains the biggest player.

The process of running the algorithms that control the blockchain is referred to as mining. Similar to the mining of gold and silver, crypto miners must dig through mountains of data to “extract” a solution to make sense of the transaction history and get a token as a reward. 

The more cryptocurrencies that exist, the more difficult they are to produce and the fewer tokens a miner receives for finding the solution. With all this in mind, it’s important to note that most cryptocurrencies have a hard limit as to how many can be produced.

Bitcoin, for example, has a hard limit of 21 million producible tokens. 

This actually creates cryptocurrencies’ greatest advantage over traditional currencies: there is no risk of hyperinflation. In fact, there is a deflationary pressure. 

This is why many have heralded cryptocurrencies as the greatest disruptive financial innovation in centuries. Exactly how this new currency will play out in the long term is still unknown, but most are certain of one thing: it’s here to stay.

The most popular cryptocurrencies?

Cryptocurrency

There are several thousand different cryptocurrencies, but Bitcoin continues to dominate the field.

There are thousands of cryptocurrencies (over 9,000 at the writing of this article). As this market continues to develop and cryptocurrency banking becomes more the mainstream process for dealing in cryptocurrency, there will only be more companies created.

Currently, by market cap, the top five biggest cryptocurrencies are Bitcoin (BTC) $1.01tn, Ethereum (ETH) $193bn, Tether (USDT) $40.1bn, Binance Coin (BCH) $39.2bn, and Cardano (ADA) $37.1bn. It is currently quite a volatile market, so be aware that these rankings and prices fluctuate daily. Even in the last year, the top currencies have changed.

Like I stated above, Bitcoin was the first cryptocurrency and still remains the most popular despite its history of rising and crashing.  

These top five cryptocurrencies make up over 80% of the crypto sector’s market cap, but there is bound to be massive fluctuations as the market grows and develops. Each of the thousands of cryptocurrency options has unique characteristics, functions, challenges, and benefits. It will just take a few more years to stabilize the market, how banks and governments interact with cryptocurrencies, and which options work best.

Is it safe to invest in cryptocurrencies? Are they a good investment?

The biggest thing to know about cryptocurrency is that it is a speculative market. There is risk involved. It’s also yet to be determined exactly how banks will handle cryptocurrency and if they want to take on the risk. In its current stage of development, there’s quite a bit of risk, but that also means there’s quite a bit of opportunity.

In this case, the risk is that your cryptocurrency could become completely worthless. There’s no government backing and it’s a digital creation, meaning it has no tangible value — only what the people involved in it give to it. 

Bitcoin, for example, has risen and fallen several times. It can go from highly valuable, to nearly worthless in a short period of time. So far, it has bounced back each time, despite people calling it dead.  Know that if you’re going to get involved in cryptocurrency, you’ll need a long-term perspective. Otherwise, the fluctuations will rattle you.

So yes, there is a fairly high risk, but the opportunity is the potential for massive returns on your investment, as seen over the past decade. 

So what do we recommend in terms of it being safe — to get involved in cryptocurrency or to avoid it? 

We regularly advise people to diversify and cryptocurrency is a great way to do that. It’s never good to put all your eggs in one basket, so don’t go all in Bitcoin or some other cryptocurrency. But it is wise to add some to your portfolio to diversify, and to take advantage of the huge returns.

Crypto is currently the most lucrative investment in world history. It’s worth having in any portfolio.

How to safely invest in cryptocurrencies like Bitcoin?

Bitcoin

To invest in Bitcoin and other cryptocurrencies safely, make sure your cryptocurrency transaction trail is traceable.

You need to know what you’re doing when you get into cryptocurrency. 

There are countless scams and an active black market just looking to take your money. If your cryptocurrency has come from one of these untraceable sources, it will be much more difficult to use it to open a bank account. It’s likely only banks with low reputations will take you.

What you want to look for is a traceable way to keep track and record your crypto transactions. To open a bank account for your cryptocurrency, you’ll need to show a traceable trail detailing how you got your cryptocurrency and who you’ve traded with since.

At this point, there is little to no regulatory oversight. As a rule of thumb, how much you should trust any crypto institution should be directly proportional to how long they have existed without incident. Before getting involved, do your homework by reading through the cryptocurrency’s white paper (their proposal for starting their Initial Coin Offering (ICO)) and research who the founders are and their experience in cryptocurrency. That can give you a good idea of their legitimacy.

The most straightforward way to buy Bitcoin or any of the thousands of cryptocurrencies out there is through a Centralized Exchange. Think of them as the brokers of the crypto world, where they both execute and store your coins on your behalf.

These usually have lower safety and privacy standards, so it’s not what we recommend, but it is the simplest way to get started.

There are also decentralized exchanges where the interactions and exchanges are all peer-to-peer with all the transactions recorded on the blockchain. 

For more specifics on how to get involved, storing, and tracking your cryptocurrency, check out our article on How to Invest in Cryptocurrency

What is cryptocurrency banking?

Cryptobanking is simply banking as you would with a regular fiat bank, but as a way of storing, exchanging, and managing your cryptocurrencies. Not all banks do this…yet. 

The process of opening a cryptocurrency bank account would be similar to that of a traditional bank account. You would be required to go through the bank’s due diligence and Know Your Customer (KYC) processes, but there would likely be more extensive checking and paperwork with cryptocurrencies. 

They will consider your citizenship, your sources of wealth, where you hold your tax residency, and if you are involved politically anywhere. These are pretty standard considerations for opening most traditional bank accounts.

The extra things they would be checking for cryptocurrency bank accounts are your crypto client profile, where you sourced your wealth before you got into crypto and the path of your wealth since getting into crypto. They will basically track with whom and how you’ve traded to get an understanding of the type of customer you will be and the risk involved.

A decade ago, cryptocurrency banking was unheard of, but these days there are more and more banks wanting your business. Banks are out to make money and please their wealthy customers. As such, they have adapted and will continue to adapt to meet this new market. 

There are also many countries seeking to become the best places for cryptocurrency. They are enacting crypto-friendly policies and setting up the infrastructure to support them. How to invest in cryptocurrency and processes like banking in Bitcoin and other cryptocurrencies will only become easier.

Opening a cryptocurrency personal or business bank account

Opening a Cryptocurrency

You’ll be more successful banking in Bitcoin and other cryptocurrencies by being upfront and open about your cryptocurrency investments.

So now on to the actual requirements and steps for opening a cryptocurrency bank account. The best advice is that you need to be prepared to present yourself and/or your company in an open and honest fashion.

Opening traditional accounts requires a lot of paperwork, documentation, and the ability to answer the bank’s questions correctly. For a cryptocurrency bank account, you’ll need to double your preparation and expect a deeper examination of who you are and the risk the bank will be taking on you and your cryptocurrency.

It’s wise to get your paperwork in order beforehand, as well as to anticipate some of the questions you’ll be asked and plan out how you will answer them. To increase your chances of successfully opening an account, you need to have a strategy for how you will respond to scrutiny and make sure your finances, taxes, and political ties are in order.

Here are a few specific strategies and suggestions for increasing the likelihood of you being able to open a cryptocurrency bank account:

Please the Compliance Officer

Be prepared to please the compliance officers. Their job is to reduce the risk for their bank. It’s easier for them to just deny your application than have to dig through a lot of information to find out if you’re a good candidate for an account.

Help them out. 

Make their job easy by having your paperwork and documentation organized and easily accessible. Be upfront and honest with them. Show how you started investing in Bitcoin or other cryptocurrencies and your transaction routes. Anticipate some of the questions they’ll have and be ready with a clear answer. 

This will increase your likelihood of opening a cryptocurrency bank account while decreasing the chance of being prematurely denied because they didn’t understand you or your business. Aim to answer their questions before they even ask them and your chances for success will be much higher.

Help Them Get to Know their Customer

Even with a traditional bank account, your banker will want to know about you, your business, and your history so they can judge the type of risk they’ll be taking on if they allow you to open an account with them. As cryptocurrency—especially cryptocurrency banking—is so new and the risk is high, they’ll want to know even more about you.

Help them get a clear picture of who you are, why you have cryptocurrency, and why you need their services.

Have your story prepared detailing why you wanted to invest in Bitcoin or other cryptocurrencies. For example, it will make sense why someone with information technology (IT) or investing background would want to join the crypto market. You might need more explanation if you’re in an unrelated field. Be prepared to explain yourself.

Have your paperwork ready to show them the transactions, bank statements regarding your cryptocurrency. This will all help them be more comfortable with you as a customer.

Make sure to be accurate in your descriptions. They’ll most likely check your references and dig deeper to examine the accuracy of your claims. It’s best, to be honest, and upfront with who you are and where, why, and how you’ve acquired your wealth.

Tax Residency and the Implications

We are the goody-two-shoes of the offshore industry. We always encourage people to do things legally. If you’re looking for someplace to hide or easily cash out of cryptocurrency, you’ll have to look elsewhere. 

We strongly advise people to make sure they are tax compliant in their country or countries of citizenship. If it’s unclear to the bank where your fiscal residency lies, they’ll report you to your home country and any other place you have residency. 

It’s also worth considering the tax implications that cashing out of cryptocurrency will have in the country where you are banking. When looking at banks, be sure to know the tax policies of the country’s government so that you won’t be liable for additional taxes/fees when you cash out. 

It might be worth working with professionals to make sure your taxes are in order and to know the policies that will affect your cryptocurrency banking experience.

You Don’t Need an Introduction

There are many lawyers, offshore “experts,” and corporate service providers who are anxious to provide you with an introduction to a banker so that you can more easily get in. For $1,000 they’ll give you the email of a banker they know is open to cryptocurrency banking. We’d like to convince you that you already have the tools and know-how you need to not need one.

Even with an introducer, you’ll still have to do all the work to compile your information, transactions, and documents. They won’t know your story and the history of all your transactions, so even if they do offer to help with this as part of their fee, it would be best to prepare them yourself so that you get the details right and are prepared to answer thoroughly.

What cryptocurrency banks are looking for most is that you meet their qualifications. 

Instead of finding an introducer, you’d be better off focusing on finding a cryptocurrency bank that meets your crypto customer profile qualities. Were you an early crypto adopter? Are you a crypto trader or miner? Or are you involved in crypto projects and businesses? These different client profiles will match with different types of cryptocurrency banks and bankers.

After considering your profile, contact the bank and ask the banker you’ll be working with what they’re looking for. It’s in their best interest to have your bank with them. They want you to succeed and open an account. So work with them to know specifically what their compliance officers will be looking for.

Banking in Bitcoin or other cryptocurrencies

The first thing to know and remember about banking with cryptocurrency is that it’s a new and developing market. The policies can, and most likely will, change. Just as cryptocurrency banks do their digging before allowing you to become their customer, you should do some research and digging to get to know your bank.

Know how your cryptocurrency bank is managed. At the basic level be sure to ask about your bank’s solvency, in what kind of products and services the bank is involved (watch out for high-risk lending behaviors), and how much cash they keep on hand.

It’s also important to consider the bank’s compliance standards. You’ll get a first-row seat to their compliance process as you go through it yourself when seeking to open an account. You don’t want the process to be too simple and easy. You want a bank that is skeptical about with whom they do business and that does their research before letting people in.

If it’s too easy to get in or if they allow rule-bending to let you in, that might hint at the fact that they are in need of money through your deposits. Be leary of easy compliance processes.

Next, be sure to know about the local jurisdiction rules of your bank. Where they are located and the rules they must comply with will affect you. Look into the political and regulatory laws affecting banks in both the bank’s country and local jurisdictions. Then be sure to keep up to date with them as they will likely change in regard to cryptocurrency banking.

Also, take into account the health of the local financial sector as well as the exposure to and cash flow of different kinds of currencies. Both of these reflect the overall health of the bank’s situation.

Lastly, be sure to make yourself aware of the cost of cashing out. Know the cryptocurrency bank’s local laws concerning taxation on cashing out as well as any fees tacked onto the process. There will be selling fees, transfer costs, and also a loss of value from the trade. Be sure to know what your cryptocurrency bank’s fees are before getting involved.

Conducting business using cryptocurrency banking

Cryptocurrency Banking

Businesses investing in and making transactions with cryptocurrency are becoming more common. The process will only become more streamlined.

Even the US is making headway in policies that help cryptocurrency become more mainstream. Adaptations are coming which will make trading, buying, and selling with cryptocurrency easier and more accessible. Banking and investing with cryptocurrencies is becoming more of a streamlined process.

What does this mean for businesses?

Many have noted that there is already a steady stream of companies adding options to invest and deal in cryptocurrencies. It’s here to stay and the wise will start getting involved. This doesn’t mean to jump fully in right away, but it’s a good option to incrementally start investing in and providing options for your business.

It’s still in the early stages, but the way is being paved for more banks to become involved in cryptocurrency. As the demand rises, banks will naturally seek to be involved. Where there is demand, the banks will follow. 

Some regulations and oversight might actually boost the trust in and stability of cryptocurrencies. The deflationary nature of cryptocurrency is making it a great hedge against the mass printing of traditional fiat currencies we’ve seen during the pandemic. As inflation around the world continues to rise, cryptocurrency will only become more desirable.

In terms of your business and banking, be aware that any involvement with cryptocurrency will attract more scrutiny and you are likely to face trouble opening cryptocurrency bank accounts. Even non-crypto companies that just accept some crypto payments will be subject to “high-risk” oversight at the banks. There is such volatility and risk currently in the market that banks are still nervous about their involvement. 

However, involvement and processes will only improve from here as the crypto market matures. In the meantime, be prepared to present your case well and be ready for a deep examination of your company and its involvement in cryptocurrency.

Conclusion

The takeaway message of banking in cryptocurrency is to do your homework. Be prepared to answer all of their questions and know the bank you are approaching. As cryptocurrency is a newer market with a lot of volatility, banks will consider you high-risk. Be ready to do more work to get your account with them.

That being said, banks will only become more open and accepting of cryptocurrency as it gains popularity and becomes more regulated. For now, however, know you’ll have your work cut out for you in convincing banks that they want you and your cryptocurrency.

Also, be prepared for change. As more governments and banks get involved, there will be more monitoring and changes. This can be a benefit to the market and lead to more trust and stability, but you’ll also need to make sure you’re staying on top of the changes and keeping up to date on policies.

As I mentioned before, our team continues to see more and more clients interested in investing and dealing in Bitcoin specifically, but also other cryptocurrencies. We are working on our end to learn and develop the best strategies to help our clients and we’re seeing great success. 

Cryptocurrency has already become an important part of creating a holistic, global strategy as a successful entrepreneur or investor. Please reach out to us if you need help learning how to invest in Bitcoin or navigating the crypto market and banking. 

Andrew Henderson
Last updated: Apr 26, 2021 at 11:55AM

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